Ray Shan

Case Study #5
Dr. Gwen Lee
10-4-05

Harley-Davidson, Inc., February 2004

1. Identify Harley-Davidson’s strategy and explain its rationale.

 Brand image: Harley-Davidson (Harley) doesn’t just sell

motorcycles; it offers its customers a whole new lifestyle and
experience. The brand image represented the fundamental
American values: “individuality, freedom, and adventure.” Harley’s
products distinguish themselves with the unique exhaust growl,
and the company furthers the possibilities with customization, such
as aftermarket chrome, offered by dealerships. Besides the
products, Harley formed the Harley Owners’ Group (HOG) to
organize people with the same interests to enjoy the Harley
experience. This marketing strategy stabilizes the company’s
market share, and brings repeating buyers: as much as 50%
motorcycles sold between 1999~2003 are to previous Harley
owners.

 Concentration on specific market segment: Harley’s marketing

strategy concentrates on only the super-heavyweight motorcycle
segment of the market. This particular segment not only consists of
motorcycles with the most profitable margins, but also corresponds
to Harley’s masculine image.

 Distribution: since the late 80’s, Harley has reorganized its

distribution network. Harley realizes that it has to have the
appropriate environment to market to “professionals who
possessed the disposal income to layout $17,000 on a motorcycle
for occasional leisure rides”, and thus retired many poorly managed
shops, and established exclusive dealerships with offering to
Harley’s full line of motorcycles, parts, service, rental, courses, etc.
The comprehensive before and after sale services offered more
exposure and opportunities to Harley’s motorcycles.

2. Compare Harley-Davidson’s resources and capabilities to those of

Honda? What does your analysis imply for Harley’s potential to
establish cost and differentiation advantage over Honda?

 Economies of scale: Harley ships less than a third of a million

 motorcycles per year, while Honda’s world wide sales reached 5.16
million in year 2000. Honda also has a far steeper
learning/experience curve, allowing more cost reductions per extra
motorcycles produced. As noted on table 8.4, Honda’s super-
heavyweight motorcycles’ retail prices are far below those of
Harley’s. If Harley’s international business does not take off, even
with the almost-50% market share in North America, it will never
be able to reach the economies of scale that Honda possesses.

 Technology: Harley is just a motorcycle manufacture, with the

rebirth of its successful business only since the early 80’s. Honda,
although have not operated in the U.S. as long as Harley, has
almost a century of experience in the automobile industry. It is one
of the world leader when comes to small engines, with superior
technology, such as multi-valve, liquid cooled engines, and
innovations implemented in its products before other competitors.
Honda’s decades of experience not only brings first-mover
advantage, but also reduces the costs of researching new
technology, something that Harley will not soon be able to surpass.

 The Harley experience: while Harley is unable to obtain cost

advantages over Honda, it does successfully differentiate itself from
all the competitors. As discussed above, Harley’s products offer the
unique styling and exhaust growl unlike others. Owning a Harley
and becoming a HOG has already become a part of the American
culture. The company is able to sustain differentiation by utilizing
its geographical advantage over oversea competitors, having
almost 50% market share in the super-heavyweight motorcycle
market segment.

3. What threats to continued success does Harley-Davidson face?

 Aging population: Harley has been milking the cash cow of

American baby-boomers for the past two decades, and they will no
longer be available as audience soon. As the company’s Buell line
of motorcycles not performing as well as expected, especially
against the long-established Japanese and European performance
motorcycle manufactures, Harley’s future does not look bright if it
is unable to attract the younger customer base.

 Competition: the further Harley broadens its market, the more

intensive the competition will be. The company has established
itself in the heavyweight segment, and already entered the
performance motorcycles with its Buell line, but it still lacks the
 economy of scale to compete with manufactures such as Honda.
With superior technology, well-rounded brand name and lower
costs/prices, Honda can easily implement an aggressive marketing
plan, such as introducing pricing wars, to regain the market shares
obtained by Harley.

 As stated in the case, Harley is “more [of] a statement of style

than a desire to ride [the motorcycle]”. The masculine image of
Harley motorcycle eventually will experience the end of its product
life cycle. It’s just a matter of whether Harley can develop new
products and technology before the trends shift to more futuristic
motorcycles.

4. How can Harley-Davidson sustain and enhance its competitive

position?

 International development: Harley needs to penetrate the

international market, especially the fast growing Asian market, by
reinvesting its profits from North America into marketing overseas.
As feared by Bleustein, it is unclear of whether the American
market will absorb additional shipments of Harley motorcycles,
although the demand is still currently high. Harley’s only way of
gaining economies of scale is to bring more audience for its
products.

 New research and development: in order to gain competitive

advantage, Harley needs to equip itself with state of the art
technology like Honda and BMW. This can be achieved by
partnering with other auto manufactures such as GM or Ford, while
keeping the all American image. New development is needed
especially for Harley’s Buell line, as the current models are not
favored exceptionally by the international market, based on
markets shared gained overseas.

 Restructuring and downsizing: it never hurts to have less overhead

and being a more nimble organization. Harley has been doing great
when comes to the financial bottom line, but the company has
already shown slow reaction time when comes to new technology
development, for example, having liquid cooled engines a decade
after Japanese manufactures introduced their multi-valve, liquid-
cooled, overhead camshaft engines. Harley can restructure to
become a flatter organization, with less levels of command, having
more units reporting directly to the top management
simultaneously. The company can also abandon its no-layoff policy,
outsourcing parts of the organization to reduce the overhead.